Manufacturing accounts (A Level) flashcards

Topic 17: Manufacturing accounts

Prime cost and factory cost of finished goods

Prime cost = direct materials consumed + direct labour + direct expenses. Factory cost of finished goods = prime cost + factory overheads + opening WIP − closing WIP.

Raw materials: opening $7,250, purchases $63,900, carriage inwards $1,350, returns outwards $900, closing $8,100. Direct wages $48,700; direct expenses $2,300. Prime cost?

Consumed 7,250 + 63,900 + 1,350 − 900 − 8,100 = $63,500. Prime cost 63,500 + 48,700 + 2,300 = $114,500.

Prime cost and overheads $171,000; opening WIP $6,400; closing WIP $5,100; transfer at cost plus 30%. Transfer price?

Factory cost 171,000 + 6,400 − 5,100 = $172,300. Profit on manufacture 30% = $51,690. Transfer $223,990.

Closing finished goods at transfer price $18,850; mark-up 30% on cost. PUP and SOFP value?

PUP 18,850 × 30/130 = $4,350. Finished goods shown at 18,850 − 4,350 = $14,500 (cost).

A year later finished goods at transfer price are $16,120 (mark-up still 30%). Change in PUP?

New PUP $3,720, a fall of $630, added to profit on manufacture. Only the change goes to the income statement.

Goods are transferred at a margin of one fifth of transfer price. Closing finished goods $22,800. PUP?

22,800 × 1/5 = $4,560.

Rent of $27,200 is split 5 : 3 between factory and office. How much goes in the manufacturing account?

27,200 × 5/8 = $17,000; the office share of $10,200 goes in the income statement.

Is a royalty paid on each unit made a prime cost or an overhead?

Prime cost: it is a direct expense, traced to each unit made.

Carriage inwards vs carriage outwards; direct vs indirect labour

Carriage inwards on raw materials is in prime cost; carriage outwards is a distribution expense. Operators who make the product are direct labour; supervisors, cleaners and maintenance staff are factory overheads.

Which two concepts require a provision for unrealised profit, and where is it shown?

Realisation and prudence. The full provision is deducted from finished goods under current assets; it is never a liability.